Irregular Income Budget

[DebtFree&Broke]

If you have an irregular income how do you set up your budget? My husband has been self employed for over a year now. I do the money management, but he says our budget isn't simple enough. Here's how I set it up.

On the 1st and 15th I take all the money he has earned and deposit it in the bank:

Income $2000.00
Taxes 10%
Overhead 10%
Paycheck $1200.00
Tithing 10%
Personal Savings & Profit Split 50/50

Example:
Income $3116.33
Taxes $311.63 (Savings #1)
Overhead $311.63 (Checking)
Paycheck $1200.00 (Checking)
Tithing $311.63 (Checking)
Personal Savings $490.72 (Checking)
Profit $490.72 (Savings #2)

I only use the money in the Profit savings account if our "paycheck" is going to be below $1200.

I write a check for our personal account that has Paycheck + Tithing + Personal Savings. Then I deposit our "paycheck" into our personal account. Tithing goes in a savings account (which I transfer over to checking once a month). We are saving up for a car, so we have our 3 months emergency fund in one savings account and I deposit the new savings into another savings account.

I can't even talk to him about how I deposit money in the bank because he thinks I'm crazy

[fe2o3ez]

What kind of business is he in? Is he an entrepreneur? I worry a bit about only setting aside 10% for taxes. Not only would you have standard taxes (which would be higher than 10%), but add in another 15% SE taxes as well, if it is 1099 income. Do you take expenses against the income?

I'm assuming you have it set up so you aren't paying any monthly maintenance fees on all those accounts...

[DebtFree&Broke]

What kind of business is he in? Is he an entrepreneur? I worry a bit about only setting aside 10% for taxes. Not only would you have standard taxes (which would be higher than 10%), but add in another 15% SE taxes as well, if it is 1099 income. Do you take expenses against the income?

I'm assuming you have it set up so you aren't paying any monthly maintenance fees on all those accounts...

Remodeling. Yes. Last year we saved 25% for taxes and only had to pay 3.5% of our income, so I figured 10% was plenty (we have other savings so if something changes we will be ok). As for taking expenses against the income... I guess so, but I don't know what that means.

Yes they are free.

[snafu]

Is DH's self employment registered as a Limited Company or entrepreneur income? I hope he's licensed and carries Business Insurance to protect him if something goes terribly wrong on-the-job.

There are likely expenses involved in his remodeling business like tools, vehicle costs for both estimates & travel to job site, phone, marketing/advertising services and more that must be charged off against income.

I too would set a base-line that covered non discretionary monthly expenses and add a specific [budget] amount for food, clothes, tithes, entertainment, gifts which includes credit cards
plus a personal allowance for each of you. I would guess insurance [life,health, disability,business, house vehicle] would be automatic [non discretionary] payment like mortgage, utilities etc. Personally, we take 10% of the top of all/any net income before any disbursements for personal savings. Retirement savings is a separate item based on Canadian rules.

you can divide savings into whatever sections meet your needs. If DH find it too complicated, what is he having difficulty using?

[DebtFree&Broke]

Is DH's self employment registered as a Limited Company or entrepreneur income? I hope he's licensed and carries Business Insurance to protect him if something goes terribly wrong on-the-job.

There are likely expenses involved in his remodeling business like tools, vehicle costs for both estimates & travel to job site, phone, marketing/advertising services and more that must be charged off against income.

I too would set a base-line that covered non discretionary monthly expenses and add a specific [budget] amount for food, clothes, tithes, entertainment, gifts which includes credit cards
plus a personal allowance for each of you. I would guess insurance [life,health, disability,business, house vehicle] would be automatic [non discretionary] payment like mortgage, utilities etc. Personally, we take 10% of the top of all/any net income before any disbursements for personal savings. Retirement savings is a separate item based on Canadian rules.

you can divide savings into whatever sections meet your needs. If DH find it too complicated, what is he having difficulty using?

Yes it's an LLC, licensed and insured too. Yes our taxes are figured after our overhead expenses and vehicle miles are deducted.

I tried adding to savings first, but some months last year his business only made $2000. It didn't do any good to add to savings and have to take it back out when we needed to pay our bills. The $1200 a paycheck covers our whole budget.

Our personal budget has the categories listed in order of most important. Then if our income is short I know that our mortgage and insurance are covered, but we don't have money for gifts or misc purchases.

$1200 x 2 = $2400 / month

Mortgage $505 (We have a rental covers $495 a month, includes home insurance)
Insurance $586 (Health, Life, Car)
Utilities $324
Gasoline $140
Groceries $300
Medical $100 (Dental, Vision, Health Deductible)
Home & Auto Repairs $280
Gifts $85
Misc $60 (Clothes, Entertainment, etc)

He has a hard time with all the savings accounts I have and how long it takes me to get ready to deposit the money.

[DebtFree&Broke]

Is there a better or easier way to budget an irregular income?

[elessar78]

How long has he been doing this particular business? With a long enough timeline (a year or two) you can probably start making projections. Knowing your local economy helps too to adjust for up and down cycles as you project it.

I think the way you have it is pretty simple. As long as you can understand it AND be able to explain it to him then I think it's a fine system. Some people don't have the patience to wrap their minds around it. My wife is smarter than me, she's the one with the master's degree, but she can't wrap her mind around money and financial stuff. I should rather say, she doesn't want to take the time to educate herself on it—I think she's always had people (her dad and myself specifically) to walk her through this aspect of life.

[disneysteve]

Is there a better or easier way to budget an irregular income?

I'm not familiar with the details but Dave Ramsey's book, The Total Money Makeover, includes worksheets and instructions for budgeting on an irregular income. You might want to check that out.

[DebtFree&Broke]

Thanks, it's based on Ramsey's budget.

How to Budget an Irregular Income - daveramsey.com

[JBlock]

Is there any sources other than Dave Ramsey's book?

[DebtFree&Broke]

Google "irregular income budget"

How to Budget for an Irregular Income :: Tips :: The 99 Percent

How To Put Together A Budget With Irregular Income